After many years, in a big relief to sugar millers, the government has decided not to convert unsold non-levy (free-sale) sugar for the first six months of this season into levy sugar (sold through ration shops, at a government-determined price).
The government determines the quantity of sugar each mill can sell in the open market, either quarterly or half-yearly. If any mill fails to sell the stipulated quantity in the open market within the specified time, that would automatically get converted into levy sugar. The sugar season starts from October 1.
The industry hailed the move. "This is a welcome step. The six months quota was on the higher side, in the first place. One important implication will be that since no penalty will be levied on mills for an unsold quota after March 31, mills will have the freedom to sell the sugar as per commercial consideration and not under government pressure," Abinash Verma, director general of the Indian Sugar Mills Association, told Business Standard.
"This is a tacit admission by the government that the October-March sugar quota was on a higher side," another senior industry official said.
Officials said the government had also lowered the total quantity of sugar that mills are required to sell in the open market between October 2012 to March 2013 to 10.65 million tonnes, down 0.15 mt from the earlier ordered 10.8 mt.
In the last three years, the government had released on an average nine mt of sugar in the first six months of the crop marketing season.
Millers said the measures were badly needed, as ex-mill sugar prices in most parts of the country had dropped below the cost of production because of excess supply, leading to a rise in payments arrears for sugarcane due to farmers.
For the first six months of the 2012-13 sugar marketing season starting October 2012, the government had fixed a free-sale quota of 11 mt. Millers complained it was far in excess of actual demand and would lead to a sharp fall in ex-mill prices.
Industry representatives said the ex-mill sale price in Uttar Pradesh had dropped Rs6-6.50 a kg below cost of production and in Maharashtra by Rs3 a kg below the cost of production. Production in the 2012-13 season is expected at 24.3 mt, almost 1.7 mt less than last year.